Another Response to Exchange Rate Question

I received this question: What do you know about the relation of exchange rates, interest rates, and how it effects exports and imports?




The answer is basically hot money is large amounts of money which people put into countries where the interest rates are highest in order to get the highest amount of return. So if interest rates are high then hot money will flow into  the country and this impacts exchange rates because hot money can cause demand for certain currencies and supply for other as it changes according to where interest rates are highest.


To understand the bond between exchange rates and exports/imports please see this video: http://a2withkomilla.blogspot.com/2011/05/response-to-question-regarding-exchange.html




Good Luck :)